<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON D.C. 20549

                                    FORM 10-Q

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                     TO
                               -------------------    -----------------------

COMMISSION FILE NUMBER  1-12607

                            KRUG INTERNATIONAL CORP.
--------------------------------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

              Ohio                                            31-0621189
-------------------------------                           -------------------
(STATE OR OTHER JURISDICTION OF                            (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)                           IDENTIFICATION NO.)

            900 Circle 75 Parkway, Suite 1300, Atlanta, Georgia 30339
--------------------------------------------------------------------------------
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
                                   (ZIP CODE)

                                 (770) 933-7000
--------------------------------------------------------------------------------
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filings requirements for the past 90 days.

Yes [X]      No [ ]

         The number of Common Shares, without par value, outstanding as of
November 5, 1999 was 4,976,285.



<PAGE>   2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

                    KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                    SEPTEMBER 30,    MARCH 31,
                                                                        1999           1999
                                                                       -------       --------
                                   ASSETS
<S>                                                                  <C>             <C>
Current Assets:
     Cash and cash equivalents                                         $ 4,450       $  2,680
     Restricted cash (Note 2)                                               --          6,641
     Receivables - net                                                   5,028          7,174
     Inventories                                                         4,691          4,959
     Prepaid expenses                                                      974            778
                                                                       -------       --------
         Total Current Assets                                           15,143         22,232

Property, Plant and Equipment, At Cost                                  11,760         11,724
     Less accumulated depreciation                                       6,148          5,796
                                                                       -------       --------
         Property, Plant and Equipment - Net                             5,612          5,928

Pension Asset                                                            1,516          1,567
Other Assets                                                                60             15
                                                                       -------       --------
            Total Assets                                               $22,331       $ 29,742
                                                                       =======       ========

                    LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
     Bank borrowings                                                   $   850       $     --
     Accounts payable                                                    7,234         10,129
     Accrued expenses                                                    3,086          4,345
     Income taxes                                                           82            199
     Net current liabilities of discontinued operations                    150            400
     Current maturities of long-term debt                                  726          5,347
                                                                       -------       --------
         Total Current Liabilities                                      12,128         20,420
Long-term Debt                                                           2,085            931
Net Non-Current Liabilities of Discontinued Operations                   1,078            911
                                                                       -------       --------
            Total Liabilities                                           15,291         22,262

Shareholders' Equity:
     Common shares, no par value:
         Issued and outstanding, 4,976,285 at September 30, 1999
            and 5,256,230 at March 31, 1999                              2,488          2,628
     Additional paid-in capital                                          3,604          4,829
     Retained earnings                                                     831          1,589
     Treasury shares, at cost, 278,700 shares at March 31, 1999             --         (1,363)
     Accumulated other comprehensive income (loss)                         117           (203)
                                                                       -------       --------
                Total Shareholders' Equity                               7,040          7,480
                                                                       -------       --------
                    Total Liabilities and Shareholders' Equity         $22,331       $ 29,742
                                                                       =======       ========
</TABLE>

            See notes to condensed consolidated financial statements


<PAGE>   3

                    KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED
                                               SEPTEMBER 30,
                                         -------------------------
                                            1999            1998
                                         -------------------------
<S>                                       <C>             <C>
Revenues                                  $ 11,941        $ 13,368
Cost of Goods Sold                          10,315          12,993
Selling and Administrative Expenses          1,711           2,210
Restructuring Charges                           --              99
                                         -------------------------
Operating Loss                                 (85)         (1,934)

Other Income (Expense):
     Interest expense                          (99)           (166)
     Interest income                            60             183
     Other income - net                         33              --
                                         -------------------------
Loss Before Income Taxes                       (91)         (1,917)

Income Tax Expense                              74              45
                                         -------------------------
Net Loss                                  $   (165)       $ (1,962)
                                         =========================

Net Loss Per Share:

     Basic                                $  (0.03)       $  (0.39)
                                         =========================
     Diluted                              $  (0.03)       $  (0.39)
                                         =========================
Average Common Shares Outstanding:

     Basic                                   4,977           5,028
                                         =========================
     Diluted                                 4,977           5,028
                                         =========================
</TABLE>

             See notes to condensed consolidated financial statements


<PAGE>   4

                    KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                         SIX MONTHS ENDED
                                                           SEPTEMBER 30,
                                                    -------------------------
                                                         1999            1998
                                                    -------------------------
<S>                                                  <C>             <C>
Revenues                                             $ 23,369        $ 25,112
Cost of Goods Sold                                     20,285          23,922
Selling and Administrative Expenses                     3,518           4,225
Restructuring Charges                                     222             198
                                                    -------------------------
Operating Loss                                           (656)         (3,233)

Other Income (Expense):
     Interest expense                                    (156)           (308)
     Interest income                                      142             299
     Equity in loss of Wyle Laboratories, Inc.             --            (123)
     Other income - net                                    34             176
                                                    -------------------------
Loss From Continuing Operations
     Before Income Taxes                                 (636)         (3,189)

Income Tax Expense                                        122               7
                                                    -------------------------
Loss From Continuing Operations                          (758)         (3,196)

Earnings From Discontinued Operations

         (net of tax of $55)                               --             348
                                                    -------------------------
Net Loss                                             $   (758)       $ (2,848)
                                                    =========================

Loss Per Share:
     Continuing Operations:

         Basic                                       $  (0.15)       $  (0.63)
                                                    =========================
         Diluted                                     $  (0.15)       $  (0.63)
                                                    =========================
     Net Loss:

         Basic                                       $  (0.15)       $  (0.56)
                                                    =========================
         Diluted                                     $  (0.15)       $  (0.56)
                                                    =========================

Average Common Shares Outstanding:

         Basic                                          4,977           5,112
                                                    =========================
         Diluted                                        4,977           5,112
                                                    =========================
</TABLE>

            See notes to condensed consolidated financial statements


<PAGE>   5

                    KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                            SIX MONTHS ENDED
                                                                               SEPTEMBER 30,
                                                                        ------------------------
                                                                            1999            1998
                                                                        ------------------------
<S>                                                                      <C>            <C>
Net Cash Used in Operating Activities                                    $(2,107)       $   (421)

Cash Flows From Investing Activities:

     Expenditures for property, plant and equipment                         (111)           (203)
     Proceeds from sale of Sowester Limited - net                             --           8,342
     Proceeds from sale of land                                               --             188
     Other                                                                    --            (132)
                                                                        ------------------------
         Net Cash Provided by (Used in) Investing Activities                (111)          8,195

Cash Flows From Financing Activities:
     Purchase of treasury stock                                               (2)         (1,363)
     Bank borrowings - net                                                   828              --
     Payments on long-term debt                                           (3,555)           (640)
     Proceeds from exercise of stock options                                  --             268
                                                                        ------------------------
         Net Cash Used in Financing Activities                            (2,729)         (1,735)

     Effect of Exchange Rate Changes on Cash                                  76             248
                                                                        ------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                      (4,871)          6,287

Restricted Cash, Cash  and Cash Equivalents at Beginning of Period         9,321           4,205
                                                                        ------------------------
Restricted Cash, Cash  and Cash Equivalents at End of Period             $ 4,450        $ 10,492
                                                                        ========================
Cash Paid For:

     Income Taxes                                                        $   170        $    325
                                                                        ========================
     Interest                                                            $   167        $    314
                                                                        ========================
Non-Cash Investing and Financing Activities:
     Capital leases                                                      $    40        $    863
                                                                        ========================
</TABLE>


          See notes to condensed consolidated financial statements



<PAGE>   6

                    KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                      THREE MONTHS ENDED SEPTEMBER 30, 1999
                             (DOLLARS IN THOUSANDS)

NOTE 1. -- BASIS OF PRESENTATION

         The unaudited Condensed Consolidated Financial Statements for the three
months ended September 30, 1999 have been prepared in accordance with Rule 10-01
of Regulation S-X of the Securities and Exchange Commission and, as such, do not
include all information required by generally accepted accounting principles.
These Condensed Consolidated Financial Statements should be read in conjunction
with the consolidated financial statements included in the Corporation's Annual
Report on Form 10-K filed on June 18, 1999. In the opinion of management, the
Condensed Consolidated Financial Statements, which are unaudited, include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position and results of operations for the periods
indicated. The results of operations for the three and six months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the entire fiscal year or any other interim period.

NOTE 2. -- BANK BORROWINGS AND LONG-TERM DEBT

         Long-Term Debt:

<TABLE>
<CAPTION>
                                      September 30,      March 31,
                                          1999             1999
                                         -------          -------
<S>                                   <C>                <C>
         U.K. Term Loan                  $ 1,482          $ 1,571
         U.K. Variable Rate Loan              --            3,236
         Capital leases                    1,066            1,161
         Finland Loan                        209              256
         Other                                54               54
                                         -------          -------
              Total                        2,811            6,278
         Less current maturities            (726)          (1,539)
         U.K. loans reclassified              --           (3,808)
                                         -------          -------
              Long-term portion          $ 2,085          $   931
                                         =======          =======
</TABLE>

         In September 1999, the Corporation refinanced its U.K. debt. A working
capital line of approximately $4,500 was established with a U.K. bank. The
availability under the line is based upon the current levels of U.K. accounts
receivable and will fluctuate with increases or decreases in eligible accounts
receivable. Borrowing under this line was $850 at September 30, 1999. In
conjunction with the refinancing, the U.K. Variable Rate Loan was repaid and
restrictions on approximately $4,100 of the Corporation's U.K. cash were
removed. The Corporation had previously agreed to keep cash on deposit at the
bank until the refinancing was completed due to violations of certain tangible
net worth and cash flow covenants in the U.K. Variable Rate and Term Loans. The
Corporation was not in compliance with certain covenants of the U.K. Term Loan
at September 30, 1999, but received a waiver dated October 15, 1999 of the
covenant violations from the bank. The covenants of the U.K. Term Loan were
subsequently renegotiated and the Corporation projects it will be in compliance
with the new covenants at the end of the current fiscal year, the date on which
the waiver of the covenant violation lapses.
<PAGE>   7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3. -- INVENTORIES

<TABLE>
<CAPTION>
                                         September 30,    March 31,
                                             1999           1999
                                            ------         ------
<S>                                      <C>              <C>
         Finished goods                     $1,391         $1,498
         Work-in-process                       940            965
         Raw materials and supplies          2,360          2,496
                                            ------         ------
                                            $4,691         $4,959
                                            ======         ======
</TABLE>

NOTE 4. -- INCOME TAXES

         The provision for income taxes is composed of the following:

<TABLE>
<CAPTION>
                                             Three Months Ended
                                                September 30,
                                            ---------------------
                                             1999           1998
                                            ------         ------
<S>                                         <C>            <C>
         Domestic                           $   --         $   --
         Foreign                                74             45
                                            ------         ------
                                            $   74         $   45
                                            ======         ======
</TABLE>

<TABLE>
<CAPTION>
                                               Six Months Ended
                                                 September 30,
                                            ---------------------
                                             1999           1998
                                            ------         ------
<S>                                         <C>            <C>
         Domestic                           $   --         $   --
         Foreign                               122              7
                                            ------         ------
                                            $  122         $    7
                                            ======         ======
</TABLE>

NOTE 5. -- OTHER INCOME - NET

         During the six months ended September 30, 1998, the Corporation sold
land in Dayton, Ohio for a pre-tax gain of $176. This property was excess to the
Corporation's needs and had been listed for sale.

NOTE 6. -- RESTRUCTURING CHARGES

         The Corporation recorded a restructuring charge of $222 for severance
paid to 18 terminated employees of the European child safety segment in the six
months ended September 30, 1999.

         The following is a summary of the provision for restructuring charges:

<TABLE>
<S>                                                                          <C>
         Balance at March 31, 1999                                            $ 680
         Provision for European Child Safety restructuring                      222
         Payments for lease exit costs of vacated Housewares facility          (599)
         Payments for European Child Safety restructuring                      (222)
         Other usage                                                            (35)
                                                                              -----
         Balance at September 30, 1999                                        $  46
                                                                              =====
</TABLE>

         The balance at September 30, 1999 represented the estimated final
expenses of a leased office in Dayton, Ohio, which was vacated in October 1996.
The lease ended on June 25, 1999, but certain costs related to the removal of
furniture and fixtures have not been finalized.



<PAGE>   8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7. -- DISCONTINUED OPERATIONS

         In prior years, the Corporation discontinued the operations and
disposed of substantially all of the net assets of its Industrial segment.
Remaining obligations related to this segment consist primarily of product
liability claims related to products sold before the disposal of the Industrial
Segment. Obligations under leases of property in Knoxville, Tennessee (which
expired December 31, 1998) were settled with the landlord in August 1999 with no
gain or loss recognized as a result of the settlement.

         On April 16, 1998, the Corporation sold its Leisure Marine subsidiary
to a company formed by the management of the segment. The purchase price was
approximately $15,000, comprised of approximately $8,900 in cash and the
assumption of approximately $6,100 of debt. As a result of the disposal, the
Corporation reported a gain of $348 under discontinued operations for the six
months ended September 30, 1998.

NOTE 8. -- TREASURY SHARES

         On April 9, 1999, the directors of the Corporation voted to retire the
278,700 common shares held as treasury shares by the Corporation. On September
24, 1999, the directors of the Corporation voted to retire 1,245 common shares
purchased by the Corporation in September 1999.

NOTE 9. -- COMPREHENSIVE INCOME

         Effective April 1, 1998, the Corporation adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
requires that all items recognized under accounting standards as components of
comprehensive earnings be reported in financial statements. This Statement also
requires that an entity classify items of other comprehensive earnings by their
nature in an annual financial statement. Other comprehensive earnings for the
Corporation includes foreign currency translation adjustments. Total
comprehensive income (loss) for the following periods were as follows:

<TABLE>
<CAPTION>
                                                Three Months Ended
                                          -----------------------------
                                          September 30,   September 30,
                                              1999            1998
                                             -----          -------
<S>                                       <C>             <C>
         Net loss:                           $(165)         $(1,962)
         Other comprehensive
         income net of tax:
            Change in equity due to
            foreign currency
            translation adjustments            745              155
                                             -----          -------
         Comprehensive income (loss)         $ 580          $(1,807)
                                             =====          =======
</TABLE>



<PAGE>   9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9. -- COMPREHENSIVE INCOME (CONTINUED)

<TABLE>
<CAPTION>
                                                Six Months Ended
                                          ----------------------------
                                          September 30,  September 30,
                                              1999           1998
                                             -----          -------
<S>                                       <C>            <C>
         Net loss:                           $(758)         $(2,848)
         Other comprehensive
         income net of tax:
            Change in equity due to
            foreign currency
            translation adjustments            320               30
                                             -----          -------
         Comprehensive loss                  $(438)         $(2,818)
                                             =====          =======
</TABLE>


NOTE 10. -- DOMESTIC DEFINED BENEFIT PENSION PLAN

         On July 1, 1999, the directors of the Corporation rescinded the
previously approved termination of the Corporation's domestic defined benefit
pension plan due to changes in business conditions and the economic environment
over the past year.


<PAGE>   10


ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

CERTAIN CAUTIONARY STATEMENTS

         In addition to historical information, Items 1 and 2 of this document
contain certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 including, without limitation,
statements regarding management's outlook for each of its businesses, the
sufficiency of the Corporation's liquidity and sources of capital and the impact
of Year 2000 issues. These forward-looking statements are subject to certain
risks, uncertainties and other factors which could cause actual results,
performance and achievements to differ materially from those anticipated,
including, without limitation, general economic and business conditions in the
U.S. and abroad, restrictions imposed by debt agreements, competition in the
housewares and child safety businesses, governmental budgetary constraints, the
regulatory environment for the Corporation's businesses, competition in the
acquisition market, changes in exchange rates, increases in prices of raw
materials and services, the purchasing practices of significant customers, the
availability of qualified management and staff personnel in each subsidiary, the
functionality of the Corporation's computer systems, claims for product
liability from continuing and discontinued operations and the operating
performance of minority-owned affiliates.

GENERAL

         During March 1998, the Corporation merged KRUG Life Sciences Inc. and
Technology/Scientific Services, Inc., its two subsidiaries which comprised the
Life Sciences and Engineering segment, with Wyle Laboratories, Inc. ("Wyle") in
exchange for a 38% equity interest in Wyle plus cash and the assumption of debt.
The Corporation is reporting for the six months ended September 30, 1999 and
1998, respectively, its equity in Wyle's income or loss as a single line item in
its condensed consolidated statements of earnings pursuant to APB No. 18.

         The Corporation previously announced that it had reached a definitive
agreement to sell its Wyle Series A Preferred Stock for $4,125 and to exchange
non-dividend paying Series B Preferred Stock currently held by the Corporation
for new 8% Senior Preferred Stock in Wyle's new holding company with a
redemption price of approximately $950 in 2003. The closing date of the sale has
been extended until November 30, 1999. Wyle has indicated to the Corporation
that it expects to complete financing for the transaction and purchase of the
Corporation's shares pursuant to the previously announced agreement. Closing of
the sale is subject to the purchaser's ability to complete financing for the
purchase of the Corporation's shares and substantially all equity held by other
non-employee stockholders as well as certain other conditions. Accordingly,
there can be no assurance that the transaction will close or will be on terms
contained in the definitive agreement.

         In April 1998, the Corporation sold its Leisure Marine subsidiary and
the results of operations of the segment are included in discontinued operations
for the six months ended September 30, 1998.


<PAGE>   11


FINANCIAL SUMMARY

<TABLE>
<CAPTION>
                               THREE MONTHS ENDED              SIX MONTHS ENDED
                                  SEPTEMBER 30,                  SEPTEMBER 30,
                             ----------------------         ----------------------
                               1999          1998             1999          1998
                             --------      --------         --------      --------
<S>                          <C>           <C>              <C>           <C>
REVENUES:
Housewares                   $  7,993      $  9,482         $ 15,674      $ 17,737
Child Safety                    3,948         3,886            7,695         7,375
                             --------      --------         --------      --------
                             $ 11,941      $ 13,368         $ 23,369      $ 25,112
                             ========      ========         ========      ========
EARNINGS (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES:
Housewares                   $    186      $   (787)(b)     $    259      $ (1,167)(b)
Child Safety                      182          (439)              (4)(a)      (909)
                             --------      --------         --------      --------
                                  368        (1,226)             255        (2,076)
Corporate Expense                (453)         (708)            (911)       (1,157)
                             --------      --------         --------      --------
Operating Loss                    (85)       (1,934)            (656)       (3,233)

Interest expense                  (99)         (166)            (156)         (308)
Interest income                    60           183              142           299
Equity in loss of Wyle
    Laboratories, Inc.             --            --               --          (123)
Other income - net                 33            --               34           176
                             --------      --------         --------      --------
Loss from Continuing
Operations before Income
Taxes                        $    (91)     $ (1,917)        $   (636)     $ (3,189)
                             ========      ========         ========      ========
</TABLE>

(a)      Includes restructuring charge of $222 for the six months ended
         September 30, 1999.

(b)      Includes restructuring charge of $99 and $198 for the three and six
         months ended September 30, 1998, respectively.

RESULTS OF OPERATIONS

         Revenues of the European housewares segment for the second quarter of
fiscal 2000 decreased by $1,489 or 15.7% to $7,993 from $9,482 for the same
quarter in fiscal 1999. The decreased revenues resulted from the loss of certain
customer listings in fiscal 1999 caused by the segment's manufacturing
difficulties last year and by the unfavorable effect of foreign currency
translation of $237. Revenues of the European child safety segment for the
second quarter of fiscal 2000 increased by $62 or 1.6% to $3,948 from $3,886 in
the same quarter of fiscal 1999. Increased sales resulted from the redesigned
child safety seats that were introduced in August 1998. The sales volume
increase was partially offset by a $117 decrease due to the unfavorable effect
of foreign currency translation. Revenues of the European housewares segment for
the six months ended September 30, 1999 decreased by $2,063 or 11.6% to $15,674
from $17,737 for the same period last year. Lower sales of all product lines
except child safety gates and the unfavorable effect of foreign currency
translation of $469 caused the decreased revenues of the segment. Revenues of
the European child safety segment for the six months ended September 30, 1999
increased by $320 or 4.3% to $7,695 from $7,375 from the same period last year.
The increased revenues were due to the introduction of the redesigned child



<PAGE>   12

safety seats, which were partially offset by a $230 decrease due to the
unfavorable effect of foreign currency translation.

         The Corporation recorded a restructuring charge of $222 in the six
months ended September 30, 1999 for severance paid to 18 terminated employees of
the European child safety segment. The reduction in staff was made to eliminate
the duplication of services at certain locations and to streamline the delivery
of the segment's products to customers. In the three and six months ended
September 30, 1998, the Corporation recorded restructuring charges of $99 and
$198, respectively, for costs related to a facility vacated by the European
housewares segment.

         Gross profit margin (revenue less cost of goods sold) increased to
13.6% for the quarter ended September 30, 1999 from 2.8% for the same quarter of
the previous fiscal year. The housewares segment gross profit margin was 9.4%
for the quarter ended September 30, 1999, compared to zero gross profit for the
same quarter last year. The increase in the current year is the result of
increased operational efficiencies at the housewares segment's manufacturing
facility which resulted from the organizational changes made during the second
half of fiscal 1999. The child safety segment gross profit margin increased to
19.3% from 12.6% from the same quarter last year. Increased sales volume due to
the redesigned child safety seats and operating efficiencies resulting from the
restructuring of the segment in the first quarter of fiscal 2000 have resulted
in the increased gross profit margin. Gross profit margin for the six months
ended September 30, 1999 increased to 13.2% compared to 4.7% for the same six
months last fiscal year. The housewares segment gross profit margin for the six
months increased to 9.2% from 1.7% and the child safety segment margin increased
to 18.3% compared to 12.0% for the same period last year. The improved gross
profit margins are the result of the changes made by the new management of the
two segments over the past twelve months to improve operating efficiencies and
reduce overhead costs.

         Selling and administrative expense decreased by $499 in the quarter
ended September 30, 1999 from the same quarter of the previous fiscal year and
by $707 for the six months ended September 30, 1999 compared to the same period
last fiscal year. The decreased expense resulted from overhead reductions at the
housewares and child safety segments over the past year to reduce their
breakeven cost levels in response to lower than anticipated sales levels.
Selling and administrative expenses include costs relating to the Corporation's
exchange offer, which expired on September 17, 1999, of $124 and $162,
respectively, for the quarter and six months ended September 30, 1999.

         Interest expense decreased $67 in the quarter ended September 30, 1999
from the same quarter of the previous fiscal year and by $152 for the six months
ended September 30, 1999 compared to the same period last fiscal year. Interest
expense has decreased in the current year as a result of lower U.K. interest
rates and reduced U.K. debt levels. Interest income decreased $123 in the
quarter ended September 30, 1999 from the same quarter of the prior year and by
$157 for the six months ended September 30, 1999 compared to the same period
last fiscal year. The decreased interest income resulted from lower levels of
cash invested and lower interest rates earned.

         The Corporation recognized $123 as its portion of Wyle's losses in the
first half of fiscal 1999 under the equity method of accounting. At September
30, 1999, the book value of the Corporation's investment in Wyle was zero as a
result of recording a portion of Wyle's losses against the carrying value of the
investment. The Corporation's proportional share of losses incurred by Wyle
subsequent to the carrying value of the investment being reduced to zero are not
recorded by the Corporation but must be offset by an equal amount of earnings
before future income, if any, from the investment can be recognized. The
Corporation has announced it has


<PAGE>   13

reached an agreement to sell its Wyle Series A Preferred Stock. See the
"General" section above for further discussion of this agreement.

         Income tax expense of $74 and $122 was recorded for the quarter and six
months ending September 30, 1999, respectively, for income taxes on profits in
Finland and Sweden. No tax benefit has been recognized for current losses in the
U.K., Germany and the U.S. The Corporation currently believes their future usage
is less likely than not. The Corporation recorded an income tax expense of $45
in the fiscal 1999 second quarter and $7 for the six months ended September 30,
1998. The tax benefit is substantially less than the statutory tax rate due to
losses incurred in the U.K., Germany and U.S. for which current tax benefits
were not recognized due to the future usage of these losses being considered
less likely than not.

         The loss from continuing operations was $165 ($0.03 per share) in the
second quarter of fiscal 2000 compared to a loss of $1,962 ($0.39 per share) in
the second quarter of fiscal 1999. The loss was substantially reduced in the
current year primarily due to the operating profits of the European housewares
and child safety segments compared to large operating losses by both segments in
the comparable quarter of last year. The loss from continuing operations was
$758 ($0.15 per share) for the six months ended September 30, 1999 compared to a
loss of $3,196 ($0.63 per share) for the comparable period last year.

DISCONTINUED OPERATIONS

         On April 16, 1998, the Corporation sold its Leisure Marine subsidiary
to a company formed by the management of the subsidiary. The purchase price was
approximately $15,000 comprised of approximately $8,900 in cash and the
assumption of approximately $6,100 of debt. As a result of the disposal, the
Corporation reported a gain of $348 under discontinued operations for the six
months ended September 30, 1998.

         In fiscal 1989, the Corporation discontinued the operations of its
Industrial segment and subsequently disposed of substantially all related net
assets. However, obligations remain relating to product liability claims for
products manufactured and sold before the disposal of the segment. The
Corporation reviewed the provision for losses from such discontinued operations
during the quarter and no changes were deemed necessary. Obligations under
leases of property in Knoxville, Tennessee (which expired December 31, 1998)
were settled with the landlord in August 1999 with no gain or loss recognized as
a result of the settlement.

LIQUIDITY AND CAPITAL RESOURCES

         The Corporation used $2,107 of cash in operating activities during the
first six months of fiscal 2000. Cash was used to provide working capital for
the European operations (primarily to reduce accounts payable balances and pay
restructuring expenses), to fund corporate expenses and to pay U.S. income
taxes.

         In September 1999, the Corporation refinanced its U.K. debt. A working
capital line of approximately $4,500 was established with a U.K. bank. The
availability under the line is based upon the current levels of U.K. accounts
receivable and will fluctuate with increases or decreases in eligible accounts
receivable. Borrowing under this line was $850 at September 30, 1999. In
conjunction with the refinancing, the U.K. Variable Rate Loan, which had an
outstanding balance of approximately $2,900, was repaid and restrictions on
approximately $4,100 of the Corporation's U.K. cash were removed. The
Corporation had previously agreed to keep cash on deposit at the bank until the
refinancing was completed due to covenant violations under the U.K. Variable
Rate and Term Loans. At September 30, 1999, the Corporation had $1,482
outstanding under the U.K. Term Loan relating to the Beldray Ltd. manufacturing
facility which


<PAGE>   14
 has quarterly principal payments and matures in fiscal 2005. The Corporation
was not in compliance with certain covenants of the U.K. Term Loan at September
30, 1999, but received a waiver dated October 15, 1999 of the covenant
violations from the bank. The covenants of the U.K. Term Loan were subsequently
renegotiated and the Corporation projects it will be in compliance with the new
covenants at the end of the current fiscal year, the date on which the waiver of
the covenant violation lapses. At September 30, 1999, the Corporation had no
outstanding U.S. debt. The Corporation believes it has adequate financing in
both the U.S. and U.K. to support its current level of operations.

IMPACT OF THE YEAR 2000 ISSUE

         Some older computer programs and systems were written using two digits
rather than four to define the applicable year (for example, 98 to denote 1998).
As a result, those computer programs have software which may recognize a date
using "00" as the year 1900 rather than the year 2000. This may result in
computer system failures or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, engage in manufacturing processes, or continue similar normal
business activities.

         State of Readiness - The Corporation recognizes the importance of the
Year 2000 issues and has given high priority to the planning and implementation
of Year 2000 solutions, including contingency planning. The Corporation has
underway a Year 2000 project to identify the programs and infrastructure that
could be affected by the Year 2000 issues and is implementing a plan to resolve
on a timely basis the problems identified. The Corporation's Year 2000 plan
generally may be broken into five interrelated phases: (i) evaluating existing
information technology ("IT") and non-IT systems of the Corporation, (ii)
implementing corrective actions to such systems (including testing), where
appropriate, (iii) evaluating the Corporation's exposure to third parties'
failures to adequately address Year 2000 issues, (iv) developing contingency
plans with respect to such exposure, and (v) on-going vigilance with respect to
Year 2000 developments. As mentioned, the scope of the Year 2000 project
includes (i) IT systems such as software and hardware; (ii) non-IT systems or
embedded technology such as micro-controllers contained in various manufacturing
systems; and (iii) the readiness of key third parties, including suppliers and
customers, and electronic data interchange with those key third parties. The
evaluation phase of the Year 2000 project includes identifying IT and non-IT
systems or components that might malfunction or fail as a result of the Year
2000 issues.

         The Corporation currently has three primary operating locations
(Bilston, England, Carlisle, England and Helsinki, Finland) and each location
has a designated person responsible for coordinating Year 2000 issues for that
location. At the largest location, Bilston, England, the IT system is less than
two years old and the IT system, when purchased, was reviewed for Year 2000
compliance. The other two locations are smaller and will require new IT systems
(primarily local area networks) for approximately 25 users at each location.
Such new IT systems will be installed by the end of 1999. The non-IT systems
identified are primarily manufacturing and assembly systems. Key third parties
have been and will continue to be contacted to minimize the disruptions in the
relationship between the Corporation and such third parties because of the Year
2000 issues. While the Corporation cannot guarantee compliance of third parties,
the Corporation will consider alternate sources of supply in the event a key
supplier cannot demonstrate its systems or products are Year 2000 compliant.

         The Year 2000 project requires the Corporation to devote considerable
internal resources and hire consultants to assist with the implementation and
monitoring of the plan, and will require the replacement of certain equipment
and replacement or modification of certain software. The Corporation will also
be working with its customers and suppliers to ensure business continuity during
the potential problem period. In order to validate systems for Year 2000
readiness (both IT and non-IT systems), the Corporation has performed a number
of


<PAGE>   15

procedures, each as appropriate for the system being verified. For IT systems,
the Corporation has, where it is able, simulated the date change to the year
2000 by resetting the system date to December 31, 1999 and then monitoring the
effects of the date change. For non-IT systems, the Corporation has been in
correspondence with the vendor or manufacturer and sought verification from them
that the system has been tested and not failed under Year 2000 conditions. Where
the Corporation has any doubt about the system's ability to deal correctly with
Year 2000 issues, contingency planning has been performed to evaluate the impact
on the business, alternatives to the system in question have been discussed and
the need for replacement considered. In addition, the manufacturers of all
equipment containing embedded circuitry purchased since November 1998 have
confirmed to the Corporation that such equipment was Year 2000 compliant before
the equipment was accepted. The Corporation has tested all IT systems and all of
the non-IT systems that can be tested, but the non-IT systems tested account for
only approximately 20% of all non-IT systems that may be affected by Year 2000
issues.

         The state of completion of each of the five phases and the
Corporation's action plan is as follows:

         Evaluating existing IT and non-IT systems of the Corporation - This has
been completed.

         Implementing corrective actions to such systems (including testing) -
The Corporation is currently testing the systems and the testing is
substantially completed.

         Evaluating the Corporation's exposure to third parties' failures to
adequately address Year 2000 issues - The Corporation is currently inquiring of
significant third parties as to their Year 2000 preparedness. Significant
suppliers, customers and service providers have been contacted and evaluated and
will continue to be evaluated as to their Year 2000 preparedness.

         Developing contingency plans with respect to such exposure -
Contingency plans have been completed.

         On-going vigilance with respect to Year 2000 developments - This
on-going process will not be fully completed until after the significant Year
2000 dates, both prior to January 1, 2000 and after, have passed.

         Costs to Address the Year 2000 Issues - The Corporation currently
estimates that the total cost of its Year 2000 project will be approximately
$200, including the cost of capital expenditures. Approximately $75 of the total
costs has yet to be spent. These costs include $100 of normal system software
and equipment upgrades and replacements, which the Corporation anticipated
incurring in the ordinary course of business without regard to the Year 2000
issues.

         Risks to the Corporation of the Year 2000 Issues - If the Corporation's
plan to address the Year 2000 issues is not successful or is not timely
implemented, the Corporation may need to devote more resources to the process
and additional costs may be incurred which could have a material adverse effect
on the Corporation's financial condition and results of operations. Problems
with the Year 2000 issues encountered by the Corporation's vendors and customers
may also have a material adverse effect of an uncertain magnitude on the
Corporation's financial condition and results of operations.

         The Corporation's Contingency Plans - As a component of its Year 2000
project, the Corporation has developed contingency plans to mitigate any
projected effects of problems experienced by it, key vendors and service
providers and customers in the timely implementation of solutions to Year 2000
problems. The Corporation has completed the contingency plans for each of the
three operating locations and will continue to correspond with its key vendors
and service suppliers and customers regarding their compliance plans for the
Year 2000 issues.


<PAGE>   16

         The estimated costs of the Corporation's Year 2000 project and the
dates by which the Corporation expects to complete portions of its Year 2000
compliance program are based on management's best estimates and reflect
assumptions regarding the availability and cost of personnel trained in this
area, the compliance plans of third parties, and similar uncertainties. However,
due to the complexity and pervasiveness of the Year 2000 issues and, in
particular, the uncertainty regarding the compliance programs of third parties,
no assurance can be given that these estimates can be achieved and actual
results could differ materially from those anticipated.

THE EURO CONVERSION

         On January 1, 1999, eleven of the fifteen member countries of the
European Union ("EU") established fixed conversion rates through the European
Central Bank ("ECB") between their existing local currencies and the Euro, the
EU's single currency. The Euro was adopted as their common legal currency on
that date. The Corporation currently operates in three countries which adopted
the Euro (Finland, France and Germany) and sells from the United Kingdom to
certain countries which adopted the Euro. The Corporation believes that the
adoption of the Euro has not had a material effect on the operations of its
European businesses.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.


<PAGE>   17

PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

         On December 31, 1998, Springdale Partners, Ltd., an Ohio Limited
Liability Company, and Mada Corporation ("Mada") filed a Complaint in the
Chancery Court of Knox County, Tennessee, naming KRUG International Corp. and
KRUG Properties Inc. ("KRUG Properties") as defendants. The suit related to
industrial property in Knoxville, Tennessee, that the Corporation sold to
Springdale Partners, an Ohio General Partnership, in December 1983. As part of
the transaction, KRUG Properties leased back a portion of the property from
Springdale Partners and the Corporation and KRUG Properties guaranteed the
obligations of Mada, the lessee of the other portion of the property. Mada was
required to use all reasonable efforts to sublease its portion of the property
on terms and conditions approved by the Corporation. As part of the purchase
price, Springdale Partners executed a $200,000 promissory note payable to the
Corporation due on December 31, 1998, which Springdale Partners failed to pay.
As part of its obligations, the Corporation was required to maintain the portion
of the property that it leased and return it on December 31, 1998 in as good
condition as it was in at the beginning of the lease, excluding ordinary wear
and tear and obsolescence. On January 25, 1999, the Corporation and KRUG
Properties filed a Complaint in the Common Pleas Court of Montgomery County,
Ohio, relating to this action and naming Springdale Partners, its general
partners and Mada as defendants. This case involves substantially the same
factual situation as the Knox County, Tennessee, case. On August 24, 1999, the
parties settled this matter by executing mutual global releases. As part of the
settlement, the Corporation received cash totaling $150,000.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         (A)      Exhibit 10.1 - Invoice Discounting Agreement (recourse)
                  Between Lombard NatWest Discounting Limited and Beldray
                  Limited, dated September 27, 1999.

         (B)      Exhibit 10.2 - Invoice Discounting Agreement (recourse)
                  Between Lombard NatWest Discounting Limited and Klippan
                  Limited, dated September 27, 1999.

         (C)      Exhibit 10.3 - Stock Purchase Agreement Between KRUG
                  International Corp. and Wyle Laboratories, Inc., dated
                  September 24, 1999.

         (D)      Exhibit 10.4 - Exchange Agreement Between KRUG International
                  Corp. and LTS Holdings, Inc., dated September 24, 1999.

         (E)      Exhibit 10.5 - Extension of Closing Date of Stock Purchase
                  Agreement and Exchange Agreement Between KRUG International
                  Corp., Wyle Laboratories, Inc. and LTS Holdings, Inc., dated
                  October 29, 1999.

         (F)      Exhibit 27 - Financial Data Schedule.

         (G)      Reports on Form 8-K - None.


<PAGE>   18

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
KRUG International Corp. has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.


                                           KRUG International Corp.



                                           By: /s/ Mark J. Stockslager
                                               ---------------------------------
                                               Mark J. Stockslager
                                               Principal Accounting Officer

Dated:   November 10, 1999